Adequacy of SIPC

Your column in January about the adequacy of FDIC and FSLIC concluded with the comment, "Of course, insurance is only as good as the insurer." Would you feel confident in the SIPC? I. C.

The Securities Insurance Protection Corporation (SIPC) is a federally chartered corporation with industry memberships and a $1 billion line of credit at the US Treasury that protects investors for losses of cash and securities left with a stockbroker in case the broker declares bankruptcy. Securities in "street name" and cash credit balances are protected up to $500,000 with no more than $100,000 in cash covered.

SIPC has been adequate to protect investors to date when brokerage firms have gone out of business. Sometimes firms in trouble have merged with stronger firms with full protection of clients' holdings.

While I personally have few qualms about the adequacy of SIPC protection, you have one alternative to avoid even that small risk. You can keep your own securities in a safe deposit box and request that cash balances be sent promptly to you. To get your own certificates, ask your broker to have them issued to you. There should be no cost for this service. Many brokers automatically order certificates for stocks purchased. Keeping your own cash balances in a money market mutual fund or other interest-earning deposit could earn you a higher return. Keeping stocks with a broker in street name is only useful when you trade regularly, possibly before the certificates are is sued following a purchase -- usually three to four weeks.